The High Court’s recent decision in Bank of New York Mellon (International) Ltd v Cine-UK Ltd and others [2021] EWHC 1013 (QB) will comfort landlords who have struggled to collect rents during the pandemic.
The case concerned three different tenants, Cineworld, Mecca Bingo and Sports Direct, who each owed rent to their landlords and who responded to proceedings for summary judgment against them with arguments that were also deployed in Commerz Real Investmentgesellschaft mbH v TFS Stores Ltd [2021] EWHC 863 (Ch); [2021] PLSCS 74. The court considered the points carefully and at length, recognised that both parties were in a predicament, and granted summary judgment to the landlords.
The judge dealt first with the Code of Practice for Commercial Property, which encourages parties to negotiate ameliorative measures to deal with rent arrears but is voluntary. Furthermore, although the evidence suggested that the landlords had insisted on payment, without discussion, the government has made it clear that, if businesses can pay some or all of their rents, they should do so – and the tenants had declined to provide evidence of their inability to pay.
The cesser of rent clauses in the tenants’ leases focused on damage or destruction, but did not actually specify that “damage” must be “physical”. So the tenants argued that, just as one can say that premises have been damaged by a road scheme that limits access to them, it could also be said that their properties had been damaged by, and become “unfit for use” owing to, the pandemic. But the surrounding clauses referred to physical remedial and reinstatement works, which indicated that the provisions were directed at “physical” damage and that the insurance was primarily for the protection of the “bricks and mortar”. Furthermore, the tenants could have purchased their own business interruption policies, which would not have fallen foul of provisions in their leases prohibiting them from insuring the premises themselves.
The tenants also tried to persuade the court that they had paid for insurance, which covered their rents, and that it was their landlords’ fault if they chose not to bring claims against their insurers. But the judge ruled that the insurance policies did not cover the rents in the circumstances that had arisen.
Nor was it possible to imply appropriate provisions in the tenants’ favour. Rents remain payable if premises become unusable, owing to, for example, a fire, unless the tenant’s lease provides otherwise. The leases were lengthy, professionally drafted documents, which expressly dealt with cesser of rent, and it is a cardinal rule that terms cannot be implied if they contradict an express term in a contract. Added to which, it was not necessary to imply a term to give the leases business efficacy. Nor would such a term pass the “obviousness” test.
The judge rejected the notion that the leases had been frustrated because they had significant periods of time left to run. But, ingeniously, the tenants relied on a brand-new concept – suspensory or short-term frustration, which had lifted the burden of rent from them. However, frustration does not suspend contracts, it terminates them, and there is no such thing as temporary frustration. Nor was it possible to hold that a partial failure of consideration had relieved the tenants from their liabilities; inability to trade was an unexpected occurrence, and not a “partial failure of consideration”. And the tenants had not been released from their rental obligations because Covid restrictions had not made payments of rent illegal or impossible.
Allyson Colby, property law consultant
